Project Valuation
Limited Resources and unlimited ambitions. The ever-increasing demand for higher shareholder's worth keeps increasing the pressure on these resources, be it monetary, physical, or intangible assets. This in turn forces the management to make rational decisions when investing the resources, leading to the need of scrupulous valuation of a project.
Business leaders are often faced with investment decisions on the new and ongoing projects. The actual challenge lies in deciding what projects to choose, expand, contract, defer, or abandon, and which method of valuation to use. Thus, the project Valuation requires a step-by-step, practical approach to real options valuation, to make it easily understandable by the practitioners as well as the senior management. This systematic approach to project valuation minimizes upfront investment risks, exercises flexibility in the decision making and maximizes the returns.
When evaluating a corporate project, forecasting parameters such as cash flows, timing of cash flows, and a discount rate, are inevitable components. Unfortunately, forecast parameters are not always reliable even under the best of circumstances. Consequently, even the best forecasting methods are subject to the sensitivity analysis to determine the effects of changes in the forecasting parameters. The ultimate goal of the sensitivity analysis is to provide a measure of how susceptible the forecast cash flows are to a change or alteration in the environment in which the forecast cash flows have been generated. Project Analysis is conducted using techniques such as Sensitivity Analysis, Scenario Analysis, Break Even Analysis, and the Monte Carlo Simulation.